Friday, February 13, 2009

On February 11th The New York Times (Feb. 11) ran a story suggesting that the boards of foundations that invested money from Madoff and thereby realized ill-gotten gains may have acted imprudently and below the level of fiduciary responsibility to which they are legally bound by failing to properly assess the provenance of Bernie's money. The IRS could (theoretically) step in and demand that the boards make the foundations whole and not to be caught out each of the fifty states could potentially do the same. Oy.

Do the charities to whom these foundations awarded tainted money now have any legal obligation to return those funds? I raised this in my obit on the JEHT Foundation (below) and have been thinking about it since.

So I asked Sarah D. McShea an attorney specializing in legal ethics about it. "I don't think there is any legal duty on the part of recipients to return grant money to foundations that improvidently invested their endowments with Madoff" she said. So legally grantee boards would seem to be off the hook. But as a trustee of three nonprofits, and as a consultant to many others I would advise looking gift horses in the mouth.

I don't want charities to be embarrassed.

If pledges are involved I don't want charities to be stiffed.

In these hard times there seem to be "mini"-Madoffs emerging every day.

A Bullet Dodged

R. Allen Stanford(Photo: Joe Skipper/Reuters)

Several federal agencies, including the F.B.I. and the I.R.S., have spent recent months looking into the business activities of the Stanford Financial Group, run by R. Allen Stanford. But now federal authorities are investigating whether those rewards were simply too good to be true. Several federal agencies, including the Securities and Exchange Commission, the F.B.I. and the Internal Revenue Service, have spent “many months” looking into the business activities of the Stanford Financial Group, which is based in Houston, and Mr. Stanford’s bank based in Antigua, which issues high-yielding certificates of deposit, according to two individuals briefed on the investigations who were not authorized to speak publicly.

During my time as chairman of Giving USA Foundation afellow board member began an adagio with executives of Stanford. The quid we offered for their quo was a multi-year full page back cover ad on our jewel publication Giving USA. There was a lot of dither and the expected gift though always imminent never materialized. We could not have known we'd have sold out our brand.

An old Southern preacher was asked if he would accept a gift of tainted money to rebuild his fire-ravaged church. He is said to have replied "... t'aint enough."